WAEC SSCE - Economics - 1997 (Essay)

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(a) Opportunity cost is the real cost of a choice measured in terms of the next best alternative that is given up when that choice is made. Because human wants are unlimited while the resources to satisfy them are scarce, every decision to use resources for one purpose means sacrificing another purpose. For example, if a farmer uses a plot of land to grow maize, the opportunity cost is the yam he could have grown on the same land instead.

(b) Relevance of the concept.

To the individual:

• Consumer spending: a consumer with a limited income must decide what to buy; spending on one good means forgoing another, so he weighs the alternatives to get maximum satisfaction.
• Use of time: a student choosing to attend classes forgoes leisure or paid work, guiding a rational use of scarce time.

To the firm:

• Allocation of resources: a firm decides which product to produce with its limited capital and labour; producing one line means giving up another, so it chooses the most profitable use.
• Investment decisions: funds tied up in one machine cannot be used elsewhere, so the firm compares expected returns of competing projects.

To the government:

• Public spending priorities: with a limited budget, money spent on defence may mean fewer hospitals or schools, so government ranks projects by their benefit to society.
• Planning and taxation: deciding how to use national resources (for example roads versus power) forces a choice among competing development needs.

In every case the concept promotes rational decision-making by making the decision-maker compare what is gained against what is sacrificed.

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Money is anything that is generally acceptable as a means of payment for goods and services and in the settlement of debts. To perform this role well it acts as a medium of exchange, a measure of value, a store of value and a standard for deferred payments.

Why people prefer to hold money (liquidity preference). According to Keynes, people demand to hold money in cash rather than in other assets for three main motives:

1. Transactions motive: money is held to meet day-to-day spending on goods and services (food, transport, bills) between the times income is received.
2. Precautionary motive: money is held as a reserve against unforeseen or emergency needs such as sickness, accident or sudden opportunities to buy.
3. Speculative motive: money is held to take advantage of future changes in the price of assets such as bonds; people keep cash to buy bonds when their prices are expected to fall (interest rates to rise), and hold fewer bonds when prices are high.

In addition, money is preferred because it is the most liquid of all assets: it can be used immediately without loss of value or delay in converting it into other things.

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Each column must add up to its total, so the missing figures are found by subtraction.

(a)
\(X=\) the 11-14 total \(=2{,}275+2{,}725=5{,}000\).
\(Y=\) males aged 36-64 \(=7{,}500-4{,}265=3{,}235\).
\(Z=\) females aged 65 and above \(=6{,}000-3{,}250=2{,}750\).

(b) Total population \(=4{,}000+5{,}000+2{,}500+7{,}500+6{,}000=25{,}000\).

(c) Aged 14 and below: males \(=1{,}350+2{,}275=3{,}625\); females \(=2{,}650+2{,}725=5{,}375\). Difference \(=5{,}375-3{,}625=1{,}750\) (there are 1,750 more females).

(d) Percentage aged 14 and below \(=\dfrac{3{,}625+5{,}375}{25{,}000}\times100=\dfrac{9{,}000}{25{,}000}\times100=36\%\).

(e) Dependants are those aged 14 and below (9,000) and 65 and above (6,000), a total of 15,000; the working group (15-64) is \(2{,}500+7{,}500=10{,}000\). Dependency ratio \(=\dfrac{15{,}000}{10{,}000}=1.5\) (that is 150%, or 3 dependants to every 2 workers).

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A joint stock company is a business owned by many shareholders whose capital is divided into transferable shares and which has a separate legal existence from its owners, while a one-man business (sole proprietorship) is owned and run by a single person. The company is preferable for the following reasons:

1. Limited liability: a shareholder can only lose the amount he invested, and his personal property is safe if the company fails. A sole trader has unlimited liability and can lose personal assets to settle business debts.
2. Larger capital: a company can raise very large sums by issuing shares and debentures to many people, whereas the sole trader is limited to personal savings and small loans.
3. Continuity of existence: because it is a separate legal person, a company continues to exist despite the death, illness or withdrawal of any owner. A one-man business usually collapses on the death of the owner.
4. Economies of scale: the larger size of a company allows it to buy in bulk, use specialised machinery and employ experts, lowering average cost. The small sole trader cannot enjoy these fully.
5. Specialisation and better management: a company can employ skilled managers for different departments (finance, production, marketing), giving more efficient management than one person handling everything.

Any five, well explained, complete the answer.

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Super-normal profit of a monopolist is earned when the price charged is greater than the average cost of producing the equilibrium output.

A monopolist is in equilibrium at point E, where marginal cost equals marginal revenue, that is, \(MC=MR\). The equilibrium output is \(OQ\), obtained by dropping a perpendicular from E to the output axis.

At output \(OQ\), the monopolist fixes the price at \(OP\), as shown by point P on the average revenue (demand) curve. The average cost of producing this output is \(OC\), shown by point C on the AC curve.

Since \(OP>OC\), the firm earns super-normal profit per unit equal to:

\[OP-OC=PC\]

Therefore, total super-normal profit is:

\[\text{Super-normal profit}= (OP-OC)\times OQ=PC\times OQ\]

It is represented by the shaded rectangle PCBA. Total revenue is \(OP\times OQ\), while total cost is \(OC\times OQ\). Thus:

\[\text{Profit}=\text{Total Revenue}-\text{Total Cost}=(OP\times OQ)-(OC\times OQ).\]

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Distribution is the movement of goods and services from producers to final consumers. In Nigeria this process faces several problems:

1. Poor transport infrastructure: bad roads, inadequate railways and congested ports delay the movement of goods, raise transport costs and cause perishable produce to spoil before reaching the market.
2. Inadequate storage facilities: shortage of warehouses, silos and cold-storage means farm produce is wasted, and goods cannot be held to smooth supply over time.
3. Too many middlemen: a long chain of wholesalers, retailers and agents each add a margin, so the final price to the consumer becomes high while producers earn little.
4. Insecurity: armed robbery, banditry and communal conflicts along trade routes discourage the free movement of goods and increase costs through losses and higher insurance.
5. Shortage of capital and credit: many traders lack funds to buy in bulk, hold stock or expand, limiting the volume and efficiency of distribution.
6. Poor communication and market information: traders often do not know where goods are scarce or plentiful, leading to gluts in some areas and shortages in others.

Any five of the above, each clearly explained, gives a complete answer.

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The petroleum industry is central to Nigeria's economy and has both positive and negative effects.

Positive effects (any three):

1. Source of government revenue: oil provides the largest share of government income through royalties, taxes and sales, financing budgets and development projects.
2. Foreign exchange earner: crude oil is Nigeria's main export, earning the bulk of the country's foreign exchange for imports and debt servicing.
3. Employment and income: the industry creates direct and indirect jobs (exploration, refining, transport, services), raising incomes and living standards.
4. Infrastructural and industrial growth: oil wealth has helped fund roads, power and by-products (petrol, kerosene, petrochemicals) that support other industries.

Negative effects (any two):

1. Environmental pollution: oil spillage and gas flaring destroy farmland, rivers and fishing, harming the health and livelihood of oil-producing communities.
2. Over-dependence on one product: heavy reliance on oil makes the economy vulnerable to falls in world oil prices and has led to neglect of agriculture and manufacturing.
3. Corruption and social unrest: struggles over oil revenue have encouraged corruption, militancy and conflict in the Niger Delta.

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(a) Population census is the official counting of all the people living in a country at a particular point in time, together with the collection of information about them such as age, sex, occupation, religion and location.

(b)(i) Implications of optimum population. Optimum population is the population size that, given the available resources and technology, produces the highest output per head. Its implications are:

• Resources are fully and efficiently utilised, giving maximum income per head and the highest standard of living.
• The right balance exists between labour and other resources, so there is neither serious labour shortage nor surplus.
• Employment opportunities match the size of the working population, keeping unemployment low.

(b)(ii) Implications of over-population. Over-population exists when the population is larger than the resources can support, so output per head falls. Its implications are:

• Falling output per head and a lower standard of living because too many people share limited resources.
• High unemployment and under-employment as jobs are fewer than job seekers.
• Pressure on social amenities such as schools, hospitals, housing and water, leading to congestion.
• Increased poverty, food shortage and pressure on land, which may cause emigration and social unrest.

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(a) Balance of Payments (BOP) is a systematic record of all economic and financial transactions between the residents of a country and the rest of the world over a given period, usually one year. It shows total receipts (inflows) against total payments (outflows) of foreign exchange.

(b) Main components.

1. Current account: records trade in goods and services and income flows. It contains:
   • the visible trade (merchandise) account, the export and import of physical goods, giving the balance of trade;
   • the invisible trade account, the export and import of services such as banking, insurance, shipping and tourism;
   • income and current transfers, such as interest, dividends, remittances and gifts.
2. Capital and financial account: records international movements of capital, such as foreign direct investment, portfolio investment, loans and the purchase or sale of assets.
3. Official reserves (monetary movements): records changes in the country's external reserves and transactions with bodies such as the IMF, used to balance any surplus or deficit on the other accounts.

By definition the overall balance of payments always balances because any deficit or surplus on current and capital accounts is offset by movements in official reserves.